Westin Hotels & Resorts- Phil. Branch vs. The Commissioner of. Internal Revenue

DECISION

In its petition for review Med with this Court on April 14, 1992, petitioner alleges:

1. That petitioner Westin Hotels & Resorts - Phil. Branch is a resident foreign corporation duly licensed under Philippine laws to engage in business in the Philippines with office address at The Westin Philippine Plaza, CCP Complex, Roxas Boulevard, Metro Manila. It operates as a branch of Westin Hotels & Resorts, duly organized and ¢xisting under the laws of the State of Delaware, United States of America; ;

2. That on April 16, 1990, petitioner filed with the respondent its corporate annual income tax return covering the calendar year ended December 31, 1989. reporting a net taxable

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. - Pape 2 - income of P19,964,157.00 and an income tax due of P6,987,455.00. From the said income tax due, petitioner credited and/or deducted the following:

a) Prior year's excess credit P4,285,052.00 b.) Quarterly payment made this year CR* 16982362; ROR* 5162613 463,327.00 ¢.) Creditable Tax Withheld 3,290,910.00 or a total of P3,039,289.00, resulting to a refundable or overpaid income tax of P1,05 1,34 00; :

3 That on May 6, 1991, petitioner filed an amended corporate income tax return for 1989 after it discovered that instead of realizing income from its management operations it suffered « loss of P5,570,555.00. It was not able to apply its prior year’s excess tax credit of P4, 352,275.00. | Likewise, the quarterly income tax payment mace on May 30, 1989 in the amount of P463,327.00 and the Creditable withholding tax at source amounting to P3,290,910 00 resulted to an overpayment in the sum of P3,754,237.00,

4. That on April 14, 1992, petitioner filed with the respondent a claim for refund or issuance of a Tax Credit | Certificate in the amount of P3,754,237.00 as overpaid income tax _ for the year 1989; , (5. That petitioner has instituted this appeal to preserve its rights under Section 230 in relation with Section 204(3) of the National Internal Revenue Code.

Respondent, in answer to the petition, manifested that petitioner must prove that this case was filed within the two- 822

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year pres riptive period as provided for in Section 230 of the Tax Code, Furthermore, since petitioner’s claim for refund or tax credit is still pending investigation by the Bureau of Internal Revenue and this petition was instituted in order to preserve petitioner's right to claim for a refund or tax credit, it might be propitious to wait for the findings and recommendation of respondent's examiners regarding said claim. Moreover, in an action for refund or tax ¢redit, the taxpayer has the burden of proof to show that the taxes paid were erroneously or illegally paid otherwise failure to do so will be fatal to its claim for refund or tax credit. Claims for refund or tax credit are construed strictly ageinst the taxpayer a¢ they are in the nature of a tax exemption.

The date of payment was construed to mean the period when the corporate income tax returfi is required to be filed.

(Bank of the Philippine Istands as Liquidator of

Paramount Acceptance Corporation v. Commissioner of Internal Revenue, CTA Case No. 4257, December 20, 1993.) Consequently, the two-year preseriptive period provided in Section 292 (now Section 230 of the Taz Codé) should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of the tax. (Commissioner of Internal Revenue v. TMX Sales, Inc. | and the Court of Tax Appeals, GR. No. §3736, January 15, 1992; Commissioner of Internal Revenue v. Asia Australia Express, Ltd, GR. 85956, Resolution dated April 10, 1989.) The term return refers to the fi nal 823

DECISION -

CTA CASE NO. 4771

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adjustment return covering the total taxable income for the preceding calendar or fiscal year (under Section 69 of the Tax Code) [ACCRAIN Investments Corporation v. The Hon. Court of Appeals, et. al, GR. No. 96322, December 20, 1991}.

Section 70(b) of the same Code provides that the final e awljustment return shall be filed on or before the 15th day of April or cn or before the 15th day of the 4th month following the close of the fiscal year, as the case may be The final income tax return shall be paid at the time the return is filed. In the recent case of Far East Bank and Trust Company/Foreign Currency Deposit Unit v. Commissioner of Internal Revenue, CTA Case Nos. 4355 and 4441, May 5, 1994, this Court ruled:

"It should be noted that herein petitioner adopts the calendar vear basis of reporting its income and expenses For calendar vear ending December 31, 1Qah, petitioner filed ft Tneeme Tax Petirn on April 15, 19387 The Tax Cole ctates if has on or before April 15, 1987 to file cord return. Petitioner has then two years within which bs Cle a written claim for refund with the Commissioner of Internal Revenue and with the Court counted from April 15, 1967, the date when petitioner is required to file its final adjustraent return. These requirements were duly complied with by petitioner On April 14, 1989, petitioner filed in writing with the Commissioner of Internal Revenue a claim for refund and on the same day filed a court suit for the refund of the alleged | excess tax payments Both the written claim for refund and the petition for review were filed within thé two-year period as the law expressly and clearly provides. Therefore, the claim for refund in CTA Case 824

DECISION -

CTA CASE NO. 4741

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Income Tax Return for the calendar year ending December 31, Lode, petitioner has up to April 15, 1990 te file its final income bie return. April 15, 1990 falls on a Sunday. If the date for filing a alls on a sunday, petitioner herein has up to the next working day to file its return or on April 15, 1990, the date it aay refund or tax credit with the respondent and for bringing 4 suit for the recovery of overpaid income tax falls on April 16, 1992. On April 14, 1992, petitioner filed with the respondent a written claim for refund or tax credit and on the same date filed a petition for review with this Court. Hence, petitioner's acts fall within the bwo-year prescriptive period for filing the instant suit for the recovery of an overpaid income tax pursuant to Section The only issue to be reselved in this case is whether or not amounting fo P3,754237.00 as overpaid income tax for the year she present any evidence te support her answer. Inst ead, she merely submitted this case for decision on the basis of the 820 \s

| -P ape § - records and the Pleadings. No memorandum was submitted by The requirement for claiming a refund of excess creditable withholding taxes under Section 10 of Revenue Regulations No. 6- “(1) that it filed a claira for refund within the two' (2) year period as prescribed under Section 292 (now 240) of the Hational Internal Revenue Code,

(2) that the income upon which the taxes were withheld

(4) the fact of withholding is established by a copy of statement (BIR Form 1743.1) duly issued by the payor iwithholding agent} to the pz ayee, showing the amount paid and the amount of tax withheld therefrom.” (Citytrust Finance Corp. ¥. The Commissioner of Internal Revenue, CTA Case Ho. 4134, November 11, 1991; Citytrust Finance Corp.

{(Formeriy Investors Finance Corporation/FNCB Finance)

¥ Commissioner of Internal Revenue, CTA Case Ho. 4046, February 24, 1993.)

1. ‘Its 1989 Amended Income Tax Return with the attached Audited Financial Statements (Exh. A)

Nac

Q, 1989 (Exh. C), and the corresponding CB Confir mation Receipt No.

BlGG82362, dated May 30, 1989 (Exh. D), in the amount of 826

DECISION -

CTA CASE NO, 4791

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P463,326.95 to prove that it had made quarterly income tax payments with the BIR; and

3. Certificate of Creditable Income Tax Withheld At Source (BIR Form 174 3.1) issued to petitioner showing the amount of Management Fee as PO5,316,196.00 and a 52 Lwithholding tax of P3,290,909.40 (Exh. F).

No controverting evidence was presented by respondent. As a matter of fact, respondent submitted this case for decision on the basis of the pleadings and records after petitioner has presented and offered its evidence.

It is noteworthy to point that the Amended Income Tax Return of petitioner for the year 1989 shows a Gross Income of 237.00, While the Certificate of Creditable Income Tax 2 Withheld At Source for 1989 showed a higher amount of management fee of P65,414,196.00. Petitioner's witness was able bt to explain the discrepancy when asked during the hearing, when she testified as follows: (pp. 5-7, TSN, Hearing of Jan. 25, 1993.)

"QO. How was the amount P3,290,910.00 arrived af by your withholding agent?

A. The 3 million pesos was based on 5% of the income payment for 1939?

.

Q. What kind of income payment was this?

A. The management service fees.

Q. What the tax base for creditable tax “withheld .« was something like P65,000,000.00 plus, was this amount declared in your income tax return for 1989?

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&. Ho, because the gross income we declared of P53,6 72 247.00 achially represents the actual : revenues for the year 1989.

a. Can vou ple a explain why was there discrepancy between the income paid by Philippine Plaza and that which you reported to 7 the BIR?

\ A. The income payment of P65,616,196.00 which ig shown in the certificate of tax withheld at source actually includes a part of 1988 income that was paid in 1989 and for which the 5% tax vas also withheld in the year 1969.

0. What ds the ~ system for reporting A. Accrual method.”

Petitioner likewise presented in evidence its 1966 Income Tax Return (pp. 64-71, CTA rec.) showing an income of P44,302,327.00 and a creditable withholding tax of P1,425,903.00. It would appear that of the 194 tax withheld of F1,825,903.00 the amount of P36,518,060.00 was the income earned on the amount of tax withheld. The 1986 management. income was reported at P44,302,327.00 more by P7,744,267.00. Hence, it can be gleaned that the income declared was higher than what was actually withheld. And since petitioner is under the accrual method of accounting, it would appear that the discrepancy of P7,145,959.00, representing income of 1986 paid in 1989, forrmed part of its 1448 income reported in its 1988 income tax return.

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We see no reason therefore why petitioner's claim for refund or tax credit should be denied. Having satisfactorily preven its claim in the sum of P3,754,2 36.75, itemized as follows:

a.) Quarter Income Tax Payment made on May 30, 1969, under \,, BIR Payment Order No. C5 162813 and CB Confirmation Receipt No.

B16982362 (Exhs. C and D} P 463,326.95 b) 19 103 | Certificate of Creditable Income

Tax Withheld At Source (BIR Form

No. 1743.1) [Exh. F] 3,290,909.80 Total Amount Refundable P3754 2 36.7 and there being no objection from respondent with respect to the evidence presented by petitioner, this Court believes the merit of petitioner's case.

WHEREFORE, the petition for review is hereby GRANTED. Respondent is hereby ordered te refund or grant a tax credit in favor of petitioner, Westin Hotel & Resor ts - Phil. Branch, the amount of P3,754,236.75, representing overpaid income ‘tax for wa) the year 1989. No pronouncement as to cogts.

WE CONCUR:

ERNESTO D. ACOSTA oo A SUEL E. GRUBA S wate haudge 29

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CERTIFICATION

This is to certify that the above decision was reached after 2) due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution.

(OGG a ca Carli ERNESTO D. ACOSTA

Presiding Judge

Court of Taz Appeals

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